Conversion of LLP into a Private Limited Company
LLP Registration has increased in India due to several factors. Many entities opting for LLP Registration are small businesses that do not feel the need to raise funds. These small businesses get the requirement to convert a private limited company for several reasons. Conversion of an LLP into a Private limited company can be done as per the provisions prescribed in Section 366 of the Companies Act, 2013, and the Company (Authorised to Register) Rules, 2014.
The requirements that must be fulfilled for converting an LLP into a Private Limited Company, such as:
- The LLP must have at least seven partners.
- All the partners must approve the conversion.
- Advertisements must be made in a local and national newspaper.
- No Objection Certificate (NOC) from ROC must be received at the place of registration.
- And all the incorporation process must be completed.
Conversion of an LLP into a Private Limited Company can be practical for the existing businesses to switch over from one form of business to another. The conversion process is a step by step procedure, which is a technical process, but with the help of professionals in Enterslice, you can save both your time and money.
What are the Advantages of Converting an LLP into a Private Limited Company?
The following are the advantages of converting an LLP into a Private Limited Company:
Preserving the Value of Brand
Conversion of an LLP into a Private Limited Company assists companies in continuing with the same brand name without making any efforts to advertise the brands.
Carry Forward the Unabsorbed Losses and Depreciation
After converting an LLP into a Private Limited Company, no expenditure can be incurred in the bookkeeping, as the losses and depreciation in an LLP can be carried forward on the conversion of business.
Employee Stock Ownership Plan (ESOP) to Employees
Companies can offer stock ownership and ESOP in the conversion of LLP into a private limited company. These types of plans help the companies in attracting efficient employees, as it offers incentive plans for them to work in their Company.
Easy to Raise Funds
The registration process of a company is strict; it helps the company structure to become more credible, amongst others. This attracts easy fundraising from the external sources.
Separate Legal Existence
By way of conversion, a company facilitates separate ownership and management to give attention to their work. The shareholder gives the responsibility to run and operate a company without losing control in the form of voting.
Limited Liability of the Owners
Conversion of an LLP into a Private limited company prohibits the liability of the owner only to the subscribed capital that is not paid by them.
What are the Reasons to get an LLP Registration?
Some of the reasons to get LLP Registration are as follows:
- To make small businesses aware of the concept of LLP.
- It is easy to form and control.
- It provides the benefit of limited liability and also provides flexibility in organizing their Company internally.
- Suppose the annual sale is more than Rs. Forty lakhs and the capital contribution does not cross the limit of Rs. 25 lakhs no audit is required.
- An LLP does not need to pay Dividend Distribution Tax.
- It is not mandatory for an LLP to conduct a Board meeting or annual meeting.
- The registration procedure of an LLP is simple as compared to a Private Limited Company.
What are the Reasons to Get a Private Limited Company Registration?
There are many reasons to register a company as a private limited company, such as:
- An LLP does not have a concept of shareholders. All the owners in an LLP are considered as Partners and unsuitable for investors such as the Venture capitalists and private equity investors not having the desire to indulge in the management of the Company. The best choice for investors is a private company. If in case the business is raising, the owners must first convert it into a private limited company.
- FDI is a popular portion of India. A private limited company does not require permission from the authorities in the Government for FDI, while the Government approval is required for FDI in an LLP.
What is the Procedure to Convert an LLP into a Private Limited Company?
Conversion of an LLP into a private limited company can be done by following the below-mentioned procedures:
Obtain Name Approval
The name approval must be obtained from the Registrar of Companies or ROC by submitting the application in e-format. To submit the application, you need to choose from the various specified items that are prescribed in Form INC-1. The name that is accepted by the authority once will be valid for 60 days.
Securing DSC and DIN
If all the seven members, who will be the directors in future of the Company after the conversion process takes place, does not have the Digital Signature Certificate or DSC and Director Identification Number or DIN for all the future directors must be received.
For obtaining DIN, an application should be filed on the MCA portal. The DIN application is processed and approved by the Central Government by way of the office of regional director, Ministry of Corporate Affairs. The form shall be accompanied by self-attested address proof and the identity proof with a recent passport size photo of the applicant (coloured photo). All the documents that are required must be duly attested by a practising cost accountant or a practising Chartered accountant or company secretary.
Filing form No. URC – 1
After receiving the approval of name from the ROC or Registrar of Companies, the applicant shall prepare and file Form URC-1 along with the following documents:
- A complete list of all the members along with the details such as an address, name, and shares held by them, etc.
- A complete checklist of the first directors of the private Company with details such as DIN, names, address, passport number and other information.
- An affidavit from all individuals who are proposed as first directors declaring that he has not been banned from being a director as per Section 164 of the Companies Act, 2013. All the necessary documents that are filed with the registrar for the registration of the Company must include all the information that is complete, correct, and true to his knowledge.
- A list including the names and addresses of the partners of the LLP and a copy of the LLP agreement and a certificate of registration that is duly verified by the designated partners of the LLP to be enclosed with it.
- A declaratory statement specifying :
- The minimal share capital of the firm and the number of shares into which it gets separated.
- The number of shares that are taken and the amount paid for all the shares.
- Name of the Company.
- Addition of the word private limited in the name of the Company.
- A No objection certificate or written consent from the creditors.
- A copy of the statement of accounts of the Company, a newspaper advertisement which must not be six days before the date of application. It must be duly certified by an auditor.
Memorandum of Association & Articles of Association
The Memorandum of Association or MOA and Articles of Association or AOA must be formulated and then filed with the Registrar of Companies or ROC after receiving the approval of name and sanction of form no-URC-1 from the ROC.
The process of converting an LLP into a Private limited company offers certain tax benefits. However, it also needs to get some additional requirements that must be fulfilled. For example, having the same shareholding by the partners as the LLP, the former partners are shareholders after a time span of five years in the newly formed Company cannot have a shareholding of the amount that is less than 50%.
There is one more option available for an LLP that is to form a separate Private Limited Company, and then they can get the whole business transferred to a private company. This can be done by preparing a written agreement, in case the restrictions explained, such as a minimum of seven partners, publishing in the newspaper, etc. are not meant to be met. However, in this type of circumstance, there is a levy of capital gain tax. Also, the stamp duty implication applies to this type of transfer.
What are the Documents Needed for Conversion of LLP into a Private Limited Company?
The following lists of documents are required for converting an LLP into a private limited company:
- Applicant’s Address Proof.
- Applicant’s Identity Proof.
- Applicant’s photograph (passport size).
What are the documents that must be provided at the time of filing of Form URC-1?
The following list of documents are needed at the time of filing of Form URC-1:
- Specifications such as the name, address, and also the shares held by the members along with the list of members.
- Collect all the details like the Name, Address, Passport Number, DIN.
- Furnish all compulsory documents with the Registrar of Companies or ROC for the registration of the Company.
- An agreement Copy of Limited Liability Partnership with a list attached consisting of the name and address of all the partners of LLP and a certified copy of registration that is duly verified by a minimum of two designated partners of LLP.
- The statement having complete details of the nominal share capital of the business and the number of shares that are separate from the number of shares taken and the amount remitted for all share .the name of the firm with the word private limited must be provided.
- No-objection certificate (NOC) from all the creditors.
- Duly certified accounts statement of the Company signed by the auditor. It should not be less than six days from the given date of application, and a copy of the newspaper advertisement is must be provided.